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WorksheetsMassive PED and YED revision quiz
Total questions: 84
Worksheet time: 1hrs 13mins
The desire to have some good or service and the ability to pay for it
supply
equilibrium
demand
quantity demanded
Which of these best describes the law of demand?
if prices go up, quantity demanded will fall and if prices go down, quantity demanded will go up
if prices go up, quantity demanded will also go up and if prices go down, quantity demanded will also go down
there is no law of demand, each situation is unique and demand and prices cannot be predicted
prices will go up for certain goods when quantity demanded goes up and vice versa
A change in the price of a good causes people to buy more or less of an item. This best describes the concept of
the demand curve
change in quantity demanded
change in demand
elasticity
Elasticity refers to
how producers of goods and services react to price changes
how consumers of goods and services react to price changes
how far a supply of scarce goods can be stretched
how often the price of a good or service changes when quantity demanded changes
Water has seen an increase in demand 8% this summer, while the price has decreased 12%
1.5 inelastic
1.5 elastic
.67 inelastic
.67 elastic
Wheat has seen a decrease in demand of 5%, while the price has increased 7%
1.4 inelastic
1.4 elastic
.71 inelastic
.71 elastic
Bread
Omega Watch
Own brand food products
Crude Oil
The price elasticity of demand for a product is calculated as -1.8. What does the negative sign indicate, and why is the magnitude more significant?
a) The negative sign indicates an increase in price leads to a decrease in quantity demanded, and the magnitude shows demand is elastic.
b) The negative sign indicates demand is elastic, and the magnitude shows the extent of elasticity.
c) The negative sign indicates an increase in price leads to an increase in quantity demanded, and the magnitude shows demand is inelastic.
d) The negative sign has no significance; only the magnitude matters for elasticity interpretation.
If the price of a product increases by 10% and the quantity demanded decreases by 5%, what does this relationship indicate?
a) There is a direct relationship between price and quantity demanded.
b) There is an inverse relationship between price and quantity demanded.
c) There is no relationship between price and quantity demanded.
d) The product is a Veblen good.
If a firm finds that the price elasticity of demand for its product is -1.5, what should the firm do to increase total revenue?
a) Increase the price
b) Decrease the price
c) Keep the price constant
d) Increase production cost
Why can't firms rely entirely on the price elasticity of demand (PED) when making pricing decisions?
a) PED only measures short-term demand changes and ignores long-term market trends and consumer behavior.
b) PED calculations are often inaccurate and cannot be used for any meaningful analysis.
c) PED does not account for other factors such as income levels, consumer preferences, and competitor actions which can influence demand.
d) PED assumes a linear relationship between price and quantity demanded, which is rarely the case in real-world markets.
If a firm finds that the price elasticity of demand for its product is -0.3, what should the firm do to increase total revenue?
a) Increase the price
b) Decrease the price
c) Keep the price constant
d) Improve product quality
A firm decides to decrease the price of its product based on its finding that the demand is elastic (PED = -2). However, competitors also reduce their prices simultaneously. What is the likely outcome in this scenario?
a) The firm's total revenue will significantly increase.
b) The firm's market share will remain unchanged, and total revenue might not increase as expected.
c) The firm's total revenue will decrease.
d) The firm's product demand will become inelastic.
Initially, the price of a product is $50, and the quantity demanded is 200 units. The price then changes to $40, and the quantity demanded increases to 300 units. What is the price elasticity of demand?
a) -2.5
b) -1.5
c) -1.0
d) -2.0
The price of a good increases by 25%, and the quantity demanded decreases from 100 units to 80 units. What is the price elasticity of demand?
a) -1.25
b) -1.5
c) -0.8
d) -2.0
The price elasticity of demand for a product is -0.5. If the quantity demanded increases by 20% and the original price was $50, what is the new price?
a) $40
b) $30
c) $60
d) $20
A product's price decreases by 10%, leading to a 15% increase in quantity demanded. What is the price elasticity of demand for this product?
a) -1.5
b) -0.67
c) -1.0
d) -1.33
Price elasticity of demand measures...
The responsiveness of quantity demanded given a change in price
The responsiveness of price given a change in demand
The responsiveness of quantity demanded given in a change in population size
The quantity demanded at any given price level
The formula for price elasticity of demand is...
% change in Qd / % change in Price
% change in Price / % change in Qd
Change in quantity / Change in price
% change in price / % change in income
A PED value greater than 1 means...
The good is price elastic
The good is price inelastic
The good is unitary elastic
The good is perfectly price elastic
A PED value less than 1 means...
The change in demand is less than the change in price
The change in demand is more than the change in price
A change in price doesn’t cause a change in demand at all
A change in price leads to a proportionate change in demand
A PED value of -1.2 means...
The change in demand is more than the change in price
The change in demand is less than the change in price
A change in price leads to a proportionate change in demand
A change in price causes a complete stop to demand
Price of a can of beans increases from 50p to 55p. As a result there is a decrease in demand of 25%. The PED is...
-2.5 and the product is therefore price elastic
-2.5 and the product is therefore price inelastic
-0.4 and the product is therefore price elastic
-2 and the product is therefore price elastic
Which of the following would make a product more price elastic?
It has lots of substitutes
It consumes a low % of income
It is a necessity
It is in the short-term
Which of the following would make a good more price inelastic?
It consumes a low % of income
It has many substitutes
It is not addictive
It is a luxury
PED is inelastic and a firm raises its price. What happens to total revenue?
Total revenue increases
Total revenue decreases
Total revenue stays the same
Marginal revenue decreases
PED is –1.5 and the firm raises price by 4%. What happens to total revenue?
Total revenue decreases
Total revenue increases
Total revenue stays the same
Total revenue decreases by 4%
The PED for a jar of coffee is -3. In April the price was £1 per jar and the firm sold 20,000 units. In July the price has increased to £1.20 per jar. How will total revenue change?
Revenue falls by £10,400
Revenue falls by £9,600
Revenue increases by £5,600
Revenue increases by £10,200
If a good is a necessity, its PED value will be
less than one
equal to one
greater than one but less than infinity
infinity
If a good has many close substitutes, the PED value for that good is likely to be
less than one
equal to one
greater than one
zero
An increase in the price of potatoes from $4.00 to $4.50 results in a fall in quantity purchased from 10,000 kg to 9000 kg. The price elasticity of demand is
1.25
0.80
0.50
12.5
How does elasticity affect potential revenue for a firm?
If demand for a good is inelastic, lowering the price could raise revenue.
If demand for a good is inelastic, raising the price could reduce revenue.
If demand for a good is elastic, raising the price must increase revenue.
If demand for a good is elastic, raising the price could reduce revenue.
Which of the following factors does NOT affect the price elasticity of demand?
Availability of substitutes
Necessity of the good
Time period considered
Cost of production
How does the availability of substitutes affect the price elasticity of demand?
More substitutes make demand more elastic.
More substitutes make demand less elastic.
Fewer substitutes make demand more elastic.
Availability of substitutes does not affect elasticity.
Which of the following is an example of a good with inelastic demand?
Luxury cars
Salt
Designer clothes
Electronics
How does the necessity of a good affect its price elasticity of demand?
Necessities tend to have more elastic demand.
Necessities tend to have less elastic demand.
Necessities do not affect elasticity.
Necessities make demand perfectly elastic.
What is the significance of price elasticity of demand in business decisions?
It helps in determining the cost of production.
It helps in setting the price of goods and services.
It helps in calculating the total revenue.
It helps in determining the supply of goods.
If the price elasticity of demand for a product is 0.5, what does this indicate about the product's demand?
The demand is elastic.
The demand is inelastic.
The demand is unitary elastic.
The demand is perfectly elastic.
Which of the following goods is likely to have a high price elasticity of demand?
Insulin for diabetics
Tap water
Airline tickets for holidays
Basic food items
What happens to total revenue if the price of a product decreases and the demand is inelastic?
Total revenue increases.
Total revenue decreases.
Total revenue remains unchanged.
Total revenue becomes zero.
For normal goods, YED will typically be......
Positive
Negative
None of the above
Both of the above
For inferior goods, YED will typically be......
Positive
Negative
None of the above
Both of the above
For luxury goods, YED will typically be......
Positive
Negative
None of the above
Both of the above
For luxury goods, YED will typically be......
Negative
More than 1
Between 0 and 1
None of the above
Negatively inelastic goods are usually inferior
True
False
Why your income increases you purchase less of this good
Normal necessity
Normal luxury
Inferior
Giffen
Why your income increases you purchase more of this good but not more than the percentage increase in your income
Normal necessity
Normal luxury
Inferior
Giffen
For Normal necessity goods, YED will typically be......
Positive
Negative
None of the above
Both of the above
Why your income increases you purchase more of this good, and more than the percentage increase in your income
Normal necessity
Normal luxury
Inferior
Giffen
How does IED/YED help a business?
Shows what products to stock and promote
Shows what price to set
Explains the meaning of life
Predicts future profit levels
If the income elasticity of market demand is negative, most consumers view the good as:
a luxury good
having many imperfect substitutes.
an inferior good.
a normal good.
What type of good would have a YED = 2
Luxury
Necessity
Inferior
If your salary increase by 30 % and in response you increase your clothing purchases by 20 %, income elasticity equals______and clothing is_______.
0.67; normal good
.67; inferior good
1.5; normal good
1.5; luxury good
A company sells solar batteries. Last year, income rose by 2% as a result, demand increased from 1.6 million units to 1.8 million. What is the YED?
5.2
-6.6
4.3
6.25
What type of good is it if the income elasticity is greater than 1?
Inelastic
Complementary
Inferior
Elastic
A company observes that the quantity demanded for their product increased from 2,000 units to 2,500 units when consumer income rose from $40,000 to $50,000. Calculate the income elasticity of demand.
0.6
0.8
1
1.5
A limitation of income elasticity of demand is:
Data accuracy and availability
Better market segmentation
Improved product development
Enhanced pricing strategy
If the income elasticity of demand for a product is 1.5, what type of good is it?
Inferior good
Normal good
Luxury good
Necessity
What is the implication of a product having a high income elasticity of demand during an economic downturn?
Demand will remain stable
Demand will decrease significantly
Demand will increase significantly
Demand will slightly increase
If the income elasticity of demand for a good is 0.8, a 10% increase in income will result in what percentage change in demand?
5%
80%
10%
8%
Consider a scenario where a popular smartphone brand releases a new model. What role does brand loyalty play in the price elasticity of demand for this new model?
It increases the demand for this smartphone model as a luxury good
It causes consumers to be less responsive to price changes for this smartphone brand
It decreases the overall market demand for smartphones
It has no significant impact on the price elasticity for this smartphone model
Which one is the correct formula for Income Elasticity of demand?
Percentage change in income / Percentage change in quantity demand for a good
Percentage change in quantity demand for a good / Percentage change in income
Percentage change in supplied for a good / Percentage change in income
Percentage change in quantity demand for a good / Percentage change in its price
Which of the following goods is most likely to have a negative YED?
Organic food
Public transport
Designer handbags
Foreign holidays
If a good has a YED close to zero, it suggests:
The good is a luxury item
The good is an inferior good
Demand is unresponsive to income changes
Demand is highly responsive to income changes
Why is knowing the YED important for businesses?
To forecast how demand changes with price
To plan for changes in consumer incomes
To set tax rates on products
To measure production efficiency
If the income of consumers rises by 5% and demand for a good falls by 3%, this good is:
A luxury good
A normal good
An inferior good
A necessity
